January Monthly Market Commentary

THE MONTH IN BRIEF
Assumptions of a global slowdown sent stocks further down in January. The blue chips and the small caps both fell more than 3% on the month. Gold and the dollar got off to a hot start for 2015, as did many foreign stock markets; energy and crop futures mostly extended losing streaks. Housing indicators were mixed, and the latest data on consumer spending, inflation and retail sales raised some questions. The big economic news came from overseas as the European Central Bank announced a long-awaited easing effort; stateside, the Federal Reserve seemed to hint that it was still considering raising interest rates this year.1

Key index performance is shown in the table below.
 
 
DOMESTIC ECONOMIC HEALTH
If institutional investors had felt as confident as American households last month, stocks might have performed better. January saw the Conference Board’s consumer confidence index reach an impressive 102.9, and the University of Michigan’s consumer sentiment index ended the month at 98.1.2
 
While consumer confidence was rising, consumer spending abruptly tailed off. Commerce Department data showed it retreating 0.3% in December. Retail sales also dropped 0.9% in the same month after two months of
solid gains.2,3
 
On the upside, personal wages grew 0.3% in December, and the federal government announced that Q4 personal spending had advanced 4.3%, becoming the major factor in the 2.6% initial estimate of Q4 GDP released in late January.2,4
 
The latest Labor Department report showed more improvement. December saw the jobless rate dip another 0.2% to 5.6%; the overall U-6 rate, which measures the marginally employed as well as the unemployed, also decreased to 11.2%. Thanks to 252,000 more Americans finding employment in December, 2014 became the nation’s best year for hiring since 2000.5 
 
Looking at another key economic barometer, we see remarkably little inflation pressure stateside. The Consumer Price Index dipped 0.4% in December following a 0.3% retreat in November. That meant the country experienced just 0.8% inflation for 2014. The core CPI was flat in December, so its year-over-year change was 1.6%. As for the Producer Price Index, it pulled back 0.3% for December and rose just 1.1% for 2014; the core PPI rose 0.3% for December, taking its 2014 gain to 2.1%.3
 
In the face of this mixed bag of indicators, the Fed sounded pretty bullish. Its latest policy statement (January 28) noted the economy expanding “at a solid pace” as opposed to the “moderate pace” noted in prior Federal Open Market Committee reflections. Nothing in the statement gave off impressions that the Fed would delay a rate hike until 2016.6     
 
GLOBAL ECONOMIC HEALTH
In late January, the European Central Bank unveiled a money-purchase program of proportions to rival QE3. The ECB announced it would buy €60 billion in bonds each month through September 2016. By weakening the euro, the central bank is aiding the economies of most eurozone countries, which are pegged heavily to exports.7
 
The ECB had to do something; annualized eurozone inflation reached -0.2% in December, the European Commission forecasts it at -0.6% for January, and it is projected to stay at +0.5% or less through 2020. For 2015, the eurozone economy is expected to expand only 1.2%; the euro area jobless rate was 11.4% in December, and that was a 2-year low.7,8
 
Did China’s economy rev up a bit in January? No. January’s “official” China factory PMI dipped 0.3 points to 49.8 (meaning contraction) and its “official” service sector PMI dropped 0.4 points to 53.7. The HSBC/Markit China PMI stayed below 50 for another month (49.7). South Korea’s key manufacturing PMI had improved 1.5 points to 51.1 in December, and Indonesia’s rose 0.9 points to 48.5; India’s factory PMI fell 1.6 points to 52.9.9
 
COMMODITIES MARKETS
Gold had a tremendous month, with futures rising 8.38% on the COMEX to settle at $1,279.20 on January 30. Its ascent was mirrored by a 9.24% climb for silver, with an ounce of that commodity being worth $17.21 at January’s end. Platinum rose 2.38% on the month; copper dropped 10.91%. The U.S. Dollar Index surged north another 5.02% in January to end the month at 94.80.11,12
 
Apart from the greenback and precious metals, the commodities sector didn’t really offer much to cheer about. Light sweet crude fell further in New York: a barrel was worth just $48.24 on the NYMEX when the month ended. January also saw heating oil futures sink another 7.43% and natural gas futures give up another 8.20%. Crops mostly descended as well, with cotton losing 1.51%, coffee 3.80%, cocoa 8.12%, soybeans 5.79%, corn 7.23% and wheat 15.27%. It wasn’t all bad, as unleaded gasoline did rise 0.61% and sugar gained 1.79%.11
 
REAL ESTATE
Mortgages got even cheaper last month: the interest rate for the 30-year fixed averaged only 3.66% according to the January 29 Freddie Mac Primary Mortgage Market Survey. That was down from 3.87% on December 31. Between the two surveys, average interest rates on the key mortgage types declined as follows: 15-year FRM, 3.15% to 2.98%; 5/1-year ARM, 3.01% to 2.86%; 1-year ARM, 2.40% to 2.38%.13,14
 
New home sales soared in December: they were up 11.6% according to the Census Bureau, coming off a (revised) 6.7% drop in November. Existing home sales improved slightly in December as well – the National Association of Realtors found them rising 2.4%, much better than the (revised) 6.3% fall of a month before. NAR’s pending home sales index, on the other hand, fell 3.7% for December after a November gain of 0.6%.2,3
 
As for home prices, NAR said that the national median resale price was $208,500 in December – the best median price in six years, and up 5.8% from a year earlier. That year-over-year improvement surpassed the 4.3% gain in the 20-city Case-Shiller home price index for December.2,15
 
To Your Prosperity,
 
Kevin Kroskey, CFP®, MBA



This article adapted with permission from MarketingLibrary.net.
 
Citations.
1 - online.wsj.com/mdc/public/page/2_3023-monthly_gblstkidx.html [1/31/15]
2 - marketwatch.com/economy-politics/calendars/economic [2/2/15]
3 - investing.com/economic-calendar/ [2/2/15]
4 - latimes.com/business/la-fi-gdp-fourth-quarter-economy-20150130-story.html [1/30/15]
5 - haver.com/comment/comment.html?c=150109B.html [1/9/15]
6 - reuters.com/article/2015/01/28/us-usa-fed-idUSKBN0L10DZ20150128 [1/28/15]
7 - latimes.com/business/la-fi-ecb-stimulus-euro-quantitative-easing-20150122-story.html [1/22/15]
8 - ec.europa.eu/eurostat [2/2/15]
9 - blogs.wsj.com/moneybeat/2015/02/02/macro-horizons-china-manufacturing-contraction-has-global-ramifications/ [2/2/15]
10 - mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [12/31/15]
11 - money.cnn.com/data/commodities/ [1/31/15]
12 - online.wsj.com/mdc/public/npage/2_3050.html?mod=mdc_curr_dtabnk&symb=DXY [1/31/15]
13 - freddiemac.com/pmms/archive.html [2/2/15]
14 - freddiemac.com/pmms/archive.html?year=2014 [2/2/15]
15 - consumeraffairs.com/news/a-strong-finish-for-sales-of-existing-homes-012315.html [1/23/15]
16 - dailyfinance.com/2015/01/21/new-home-construction-rises-december/ [1/21/15]
17 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=1%2F29%2F10&x=0&y=0 [1/30/15]
17 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=1%2F29%2F10&x=0&y=0 [1/30/15]
17 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=1%2F29%2F10&x=0&y=0 [1/30/15]
17 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=1%2F31%2F05&x=0&y=0 [1/30/15]
17 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=1%2F31%2F05&x=0&y=0 [1/30/15]
17 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=1%2F31%2F05&x=0&y=0 [1/30/15]        
18 - treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [2/2/15]
19 - treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [1/30/15]
20 - marketwatch.com/story/stock-markets-fate-depends-on-the-next-six-days-2015-01-23 [1/23/15]
21 - online.wsj.com/mdc/public/page/2_3023-monthly_gblstkidx.html [12/31/14]
 
By

2014 Year In Investing

Looking back on 2014, people are going to say it was a great year to be an investor. They won’t remember how uncertain the journey felt right up to the last day of a year that saw the S&P 500 close at a record level on 53 different days. Think back over a good year in the market. Was there ever a time when you felt confidently bullish that the markets were taking off and delivering double-digit returns?

 Key index performance is shown in the table below. 


 
 
 
 
 
 
 
 
 
 
Part of the reason that U.S. stocks performed so well when investors seemed to be constantly looking over their shoulders is interest rates—specifically, the fact that interest rates remained stubbornly low, aided, in no small part, by a Federal Reserve that seems determined not to let the markets dictate bond yields until the economy is firmly and definitively on its feet. The Bloomberg U.S. Corporate Bond Index now has an effective yield of 3.13%, giving its investors a windfall return of 7.27% for the year due to falling bond rates. 30-year Treasuries are yielding 2.75%, and 10-year Treasuries currently yield 2.17%. At the low end, 3-month T-bills are still yielding a miniscule 0.04%; 6-month bills are only slightly more generous, at 0.12%.

Normally when the U.S. investment markets have posted six consecutive years of gains, five of them in double-digit territory, you would expect to see a kind of euphoria sweep through the ranks of investors. But for most of 2014, investors in aggregate seemed to vacillate between caution and fear, hanging on every economic and jobs report, paying close attention to the Federal Reserve Board’s pronouncements, seemingly trying to find the bad news in the long, steady economic recovery.

One of the most interesting aspects of 2014—and, indeed, the entire U.S. bull market period since 2009—is that so many people think portfolio diversification was a bad thing for their wealth. When global stocks are down compared with the U.S. markets, U.S. investors tend to look at their statements and wonder why they’re lagging the S&P index that they see on the nightly news. This year, commodity-related investments were also down significantly, producing even more drag during what was otherwise a good investment year.

But that’s the point of diversification: when the year began, none of us knew whether the U.S., Europe, both or neither would finish the year in positive territory. Holding some of each is a prudent strategy, yet the eye inevitably turns to the declining investment which, in hindsight, pulled the overall returns down a bit. At the end of next year, we may be looking at U.S. stocks with the same gimlet eye and feeling grateful that we were invested in global stocks as a way to contain the damage; there’s no way to know in advance.

Is a decline in U.S. stocks likely? One can never predict these things in advance, but the usual recipe for a terrible market year is a period right beforehand when investors finally throw caution to the winds, and those who never joined the bull market run decide it’s time to crash the party. The markets have a habit of punishing overconfidence, but we don’t seem to be seeing that quite yet.  However, been many valuation metrics, US stocks seem expensive.

What we ARE seeing is kind of boring: a long, slow economic recovery in the U.S., a slow housing recovery, healthy but not spectacular job creation in the U.S., stagnation and fears of another Greek default in Europe, stocks trading at values slightly higher than historical norms and a Fed policy that seems to be waiting for certainty or a Sign from Above that the recovery will survive a return to normal interest rates. 

On the plus side for consumers, we also saw a 46% decline in crude oil prices, saving U.S. drivers approximately $14 billion this year.

The Fed has signaled that it plans to take its foot off of interest rates sometime in the middle of next year. The questions that nobody can answer are important ones: Will the recovery gain steam and perhaps help companies increase earnings growth to help justify lofty valuations in the year ahead? Will Europe stabilize and ultimately recover, raising the value of European stocks? Will oil prices remain low, giving a continuing boost to portions the economy? Or will, contrary to long history, the markets flop without any kind of a euphoric top?

We can’t answer any of these questions, of course. What we do know is that since 1958, the U.S. markets, as measured by the S&P 500 index, have been up 53% of all trading days, 58% of all months, 63% of all quarters and 72% of the years. Over 10-year rolling time periods, the markets have been up 88% of the time. These figures do not include the value of the dividends that investors were paid for hanging onto their stock investments during each of the time periods.

Yet since 1875, the S&P 500 has never risen for seven calendar years in a row. Could 2015 break that streak? Stay tuned.
 
To Your Prosperity,
 
Kevin Kroskey, CFP®, MBA
 
This article adapted with permission from Bob Veres.

Sources:
By

November Monthly Market Commentary

THE MONTH IN BRIEF
November brought a dizzying plunge in oil prices, confirmation of a recession in Japan and distinct hints of one in the euro area, and declines in the pace of manufacturing activity in America, Europe and China. Even so, the month was remarkably placid on Wall Street – unlike October, we didn’t see a lot of days marked by triple-digit Dow swings. The Dow, in fact, rose 2.52% on the month; many overseas benchmarks posted nice gains as well. Losses plagued the commodities sector. The latest GDP estimates out of Washington suggested our economy was in better shape than some analysts thought.1

 Key index performance is shown in the table below. 

 
DOMESTIC ECONOMIC HEALTH
By the estimate of the federal government, the second and third quarter of 2014 amounted to the best six months for the U.S. economy since 2003. The Commerce Department revised Q3 output up to 3.9%, complementing 4.6% growth for Q2.2 

 Another key economic indicator improved further. The jobless rate had ticked down to 5.8% in October, with the U-6 rate (encompassing part-time workers, jobseekers and those out of the job hunt) falling 0.3% to 11.5%. Labor Department data showed companies adding 214,000 new hires to their payrolls in that month.3,4    

 While economists certainly found this encouraging, households weren’t feeling so upbeat. The Conference Board’s consumer confidence index fell to 88.7 from its October reading of 94.5; the University of Michigan’s consumer sentiment index did better, finishing November 1.9 points higher at 88.8.5

 The Consumer Price Index was flat in October, and up just 1.7% year-over-year. Still, the tenth month of the year brought only modest gains for consumer spending (0.2%) and retail sales (0.3%). Total Black Friday sales were down 11% from 2013 levels, according to National Retail Federation estimates; this could have reflected online sales growth and more stores having deep discounts on Thanksgiving Day.5,6

 Declining gas prices across the month effectively put more money in consumers’ pockets, a factor that may lead to greater personal spending for November. By December 1, AAA’s Daily Fuel Gauge Report showed regular unleaded averaging just $2.77 a gallon.7

 U.S. manufacturing activity cooled a bit in November, but our factory sector was still hotter than many others worldwide. The Institute for Supply Management’s November manufacturing PMI came in with a reading of 58.7, down from 59.0 in October. (ISM’s service sector PMI had slipped 1.5 points to 57.1 in October.) Overall durable goods orders rose 0.4% in October, but core durable orders fell 0.9%. The headline Producer Price Index was up 0.2% for October, but only 1.5% annually.5,8,9

 GLOBAL ECONOMIC HEALTH
Unexpectedly, Japan fell into a recession in Q3. Analysts surveyed by Reuters thought its economy would expand 2.1%; instead, there was a 1.6% contraction following a 7.3% reversal in Q2. This affirmed and underscored the Bank of Japan’s decision to ease for the foreseeable future.10

 The euro area hadn’t slipped back into recession yet, but it was coming perilously close in the eyes of many economists. Its yearly inflation measured just 0.3% last month and its jobless rate was at 11.5%. European Central Bank President Mario Draghi said that ECB leaders would consider exceptional moves (such as buying sovereign debt) to ward off deflation. The Markit manufacturing PMI for the eurozone barely showed expansion for November with a 50.1 mark.10,11,12

 Word came that China’s economy had grown 7.3% in Q3, putting it on pace for its worst year since 1990. China’s official factory PMI came in a half-point lower in November at 50.3, and the HSBC/Markit PMI for the PRC showed no expansion for the sector at all with a reading of 50.0 that represented a 6-month low. Markit manufacturing PMIs in Indonesia and Japan also fell, but India’s rose to a 21-month high in November.12,13

 WORLD MARKETS
Generally speaking, November was a good month with many consequential indices advancing. Some of the gains in the Asia Pacific region: Sensex, 2.97%; KOSPI, 0.83%; Shanghai Composite, 10.85%; Nikkei 225, 6.37%; KSE 100, 2.70%. The Hang Seng was flat (-0.04% to be precise) while Australia's ASX 200 suffered a 3.86% retreat. Elsewhere in the Americas, the Bovespa had a flat month (+0.07%) while the TSX Composite rose 0.90% and the IPC All-Share lost 1.86%.1

 Major European indices saw the following November gains: CAC 40, 3.71%; DAX, 7.01%; IBEX, 2.80%; FTSE MIB, 1.17%; FTSE 100, 2.69%. Russia's RTS was the big November loser, retreating 10.74%.1

 As for multinational and regional benchmarks, the Global Dow rose 1.72% in November, the Europe Dow 2.71% and the Dow Jones Americas 1.91%; the Asia Dow lost 0.53%. Europe’s STOXX 600 bourse advanced 3.10% for the month. The MSCI World Index gained 1.84%, but MSCI’s Emerging Markets Index lost 1.12%.1,14

 COMMODITIES MARKETS
On November 28, OPEC ministers made no move to reduce oil output from their respective nations. That cemented an awful monthly loss for NYMEX crude – prices fell 18.23% for November to a settlement of $66.15 a barrel. Heating oil (-12.60%) and RBOB gasoline (-12.54%) were also crushed last month. The same couldn’t be said for natural gas; it rose 5.72% in November. Cold weather was not only a boon to natgas futures, but also an aid to wheat futures: they rose 8.74% for November, standing out in a field of losses among crops. Corn did advance 0.27%, but coffee dipped 0.90%, cocoa 0.69%, cotton 5.16%, sugar 2.87% and soybeans 2.59%.15

 Gold didn’t fare too badly in November, losing only 0.54% and settling at a COMEX price of $1.175.20 an ounce at month’s end. Copper fell 6.43% on the month, platinum 1.35% and silver 3.24% (it wrapped up the month at $15.49 an ounce). The U.S. Dollar Index tacked on another 1.43% to its YTD gain and ended November at 88.16.15,16

 REAL ESTATE
The month’s last Freddie Mac Primary Mortgage Market survey (November 26) found the average interest rate for a 30-year FRM at 3.97%, down 0.01% from the October 30 survey. Rates on other types of home loans moved appreciably during the month. On November 26, the mean rates for the 15-year FRM, 5/1-year ARM and 1-year ARM were respectively at 3.17%, 3.01% and 2.44%; compare that with 3.13%, 2.94% and 2.43% on October 30.17

 Home sales (new and existing) again improved to minor degree. The National Association of Realtors found resales up 1.5% in October – but most importantly, October brought the first year-over-year gain in sales (2.5%) seen in 12 months. Across a year of data, distressed sales had fallen to 9% of the market from 14%. (Not all the news from NAR was good; its pending home sales index fell 1.1% for October.) New home purchases increased in October as well – the Census Bureau measured a 0.7% gain, marking a third straight month of increasing sales volume.5,18

 NAR stated that the median existing-home price was $208,300 in October, down from $209,700 in September. September’s S&P/Case-Shiller Home Price Index showed only a 4.9% annualized gain (this was across the full 20-city index).5,18
As for new projects, the Census Bureau also noted a 4.8% gain in building permits in November, with the indicator reaching a 6-year peak. A drop in multi-family projects sent overall housing starts down 2.8% in October, though single-family starts rose 4.2%.19

 LOOKING BACK…LOOKING FORWARD
While the Russell 2000 had a flat month (actually losing 0.02% to 1,173.23), other major U.S. indices fared well in November, with the S&P 500 rising 2.45% to 2,067.56, the NASDAQ gaining 3.47% to 4,791.63 and the DJIA advancing 2.52% to 17,828.24. The CBOE VIX ended November at 13.33, sliding 4.99% for the month.1

 The fall earnings season, the waning fears about Ebola invading the U.S. and the ease with which Wall Street accepted the end of QE3 were factors in a very positive November. Will stocks continue to rally in December as energy investors wait for a point of capitulation? One view says cheap oil is good for the consumer, the broad economy and the stock market. Another view sees an extended lack of demand not only hurting energy shares, but also breeding unemployment and deflation. Eyes will also be on the Fed – as we are on the cusp of 2015, its December policy meeting might be a moment at which some clues emerge about the timing of an interest rate hike. Still, stocks don’t seem too beset by obstacles as we head toward the New Year, and with any luck, the December 31 close for the S&P 500 just might be a record one.  

UPCOMING ECONOMIC RELEASES: Here is a roll call of the important stateside reports and releases in the year’s final month: November’s ISM services PMI, a new Federal Reserve Beige Book and the November ADP employment report (12/3), November’s Challenger job-cut report (12/4), the November jobs report from the Labor Department and October factory orders (12/5), October wholesale inventories (12/9), November retail sales and October business inventories (12/11), the preliminary December consumer sentiment index from the University of Michigan plus the November PPI (12/11), November industrial production (12/15), November housing starts and building permits (12/16), a Fed policy statement and November’s CPI (12/17), the Conference Board’s leading indicator index for November (12/18), November existing home sales (12/22), the final estimate of Q3 GDP, the final December consumer sentiment index from the University of Michigan, and November new home sales, personal spending and hard goods orders (12/23), October’s Case-Shiller home price index and 2014’s last Conference Board consumer confidence index (12/30), and then finally NAR’s report on November pending home sales (12/31).

To Your Prosperity,

Kevin Kroskey, CFP®, MBA 

This article adapted with permission from MarketingLibrary.net.
Citations.
1 - online.wsj.com/mdc/public/page/2_3023-monthly_gblstkidx.html [11/30/14]
2 - nasdaq.com/article/us-thirdquarter-gdp-revised-up-to-39-advance-20141125-00467 [11/25/14]
3 - ncsl.org/research/labor-and-employment/national-employment-monthly-update.aspx [11/7/14]
4 - portalseven.com/employment/unemployment_rate_u6.jsp [11/26/14]
5 - investing.com/economic-calendar/ [11/26/14]
6 - tinyurl.com/p9lj9f4 [12/1/14]
7 - fuelgaugereport.aaa.com [12/1/14]
8 - ism.ws/ismreport/NonMfgROB.cfm [12/1/14] 
9 - ism.ws/ismreport/NonMfgROB.cfm [11/5/14]
10 - tinyurl.com/pxyju2p [11/17/14]
11 - epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/ [12/1/14]
12 - reuters.com/article/2014/12/01/us-global-economy-idUSKCN0JF1AN20141201 [12/1/14]
13 - reuters.com/article/2014/11/20/us-global-economy-idUSKCN0J407V20141120 [11/20/14] 
14 - mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [11/30/14]
15 - money.cnn.com/data/commodities/ [11/30/14]16 - online.wsj.com/mdc/public/npage/2_3050.html?mod=mdc_curr_dtabnk&symb=DXY [11/30/14]
17 - freddiemac.com/pmms/archive.html [12/1/14]
18 - forbes.com/sites/erincarlyle/2014/11/20/existing-home-sales-rise-1-5-in-october-hit-fastest-pace-in-more-than-year-says-nar/ [11/20/14]
19 - bloomberg.com/news/2014-11-19/housing-starts-in-u-s-fall-on-multifamily-as-permits-climb.html [11/19/14]
20 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=11%2F29%2F13&x=0&y=0 [11/28/14]
20 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=11%2F29%2F13&x=0&y=0 [11/28/14]
20 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=11%2F29%2F13&x=0&y=0 [11/28/14]
20 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=11%2F27%2F09&x=0&y=0 [11/28/14]
20 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=11%2F27%2F09&x=0&y=0 [11/28/14]
20 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=11%2F27%2F09&x=0&y=0 [11/28/14]
20 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=11%2F29%2F04&x=0&y=0 [11/28/14]
20 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=11%2F29%2F04&x=0&y=0 [11/28/14]
20 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=11%2F29%2F04&x=0&y=0 [11/28/14]    
21 - treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [11/3/14]
By

October Monthly Market Commentary

THE MONTH IN BRIEF
Wall Street had a dramatic October, as investors grew anxious about the big Es: Ebola, Europe and easing (specifically, the end of QE3). Ultimately, stocks climbed higher with help from another big E: earnings. The S&P 500 advanced 2.32% for the month, pushing into record territory again. Many Asia Pacific stock indices posted solid gains; many European indices racked up October losses. It was a rough month for gold, silver, oil and many crop futures. Domestic indicators were mostly positive and made the U.S. look like a bright spot in the global economy. Sales picked up slightly in the housing market, and the stock market seemed to take the wrap-up of the Federal Reserve’s historic stimulus program in stride.1


Key index performance is shown in the table below.

 
DOMESTIC ECONOMIC HEALTH
The initial Q3 GDP reading suggested that the economy was now on solid footing. The Bureau of Economic Analysis reported 3.5% expansion in Q3; that and the 4.6% growth of Q2 represented the best six months for the economy in more than a decade. Consumer spending was the question mark: it grew just 1.8% in Q3, and it actually retreated 0.2% in September, a month which also brought a 0.3% decline in retail sales. Some of the Q3 personal spending slowdown could be attributed to limited wage growth; personal incomes had grown by an unspectacular 2.0% in 12 months.2,3  
 
Consumer confidence, on the other hand, kept improving. The Conference Board’s October index hit 94.5, and the University of Michigan’s consumer sentiment gauge had a final October reading of 86.9.2,3
 
Thanks to 248,000 new hires, the U.S. jobless rate fell to 5.9% in September. America hadn’t seen such low unemployment since July 2008. The U-6 rate (unemployed + underemployed) dipped to a 71-month low of 11.8%.4
 
September saw no real pickup in consumer prices – just another 0.1% gain in both the headline and core Consumer Price Index. The annualized advance for both was just 1.7%. (Food prices, however, had risen 3.0% in 12 months.) Producer prices dipped 0.1% in September after being unchanged for August.2,5
 
Speaking of production, September brought a 1.0% gain in factory output, although hard goods orders tailed off 1.3%. The 59.0 reading on the Institute for Supply Management’s October manufacturing PMI defied the forecast of analysts polled by MarketWatch, who had predicted a 0.1% decline from September to a mark of 56.5. (ISM’s non-manufacturing PMI fell a whole percentage point in September to 58.6.)2,6 
 
Lastly, the month ended with the American Automobile Association forecasting the average U.S. gas price to dip under $3 a gallon in early November, a prediction that came true. On November 3, AAA had a mean nationwide price of $2.98 for regular unleaded, which had become 36¢ cheaper over a year.7,8

 
GLOBAL ECONOMIC HEALTH
Just as the Fed halted its monetary stimulus, the Bank of Japan increased its asset purchase program. On Halloween, the BofJ said that it would boost its quantitative easing to 80 trillion yen a year from the current 50 trillion yen. The announcement gave a boost to global stocks and poised Japan’s currency for depreciation.7
 
Not all the news out of the Asia Pacific region was so encouraging. China’s economy was coming off its poorest quarter since 2008: its official GDP reading for Q3 was 7.3%, down from 7.5% in Q2 and the poorest measurement taken since Q1 2009. The country’s industrial output rose to 8.0% in September from 6.9% in August, perhaps a sign of a better number for Q4. The Chinese government’s manufacturing PMI declined 0.3 points to 50.8 for October, while the HSBC/Markit PMI for the nation came in at a slightly improved 50.4.9,10
 
Was a recession imminent for the euro area? At month’s end, the European Central Bank had refrained from easing, even with the risk of deflation. Germany’s manufacturing sector grew slightly in October, but there was contraction in Italy and France and the overall Markit factory PMI for the eurozone was a tepid 50.6.10
 
WORLD MARKETS
European stock market investors lacked confidence in October: the month saw the Europe Dow lose 2.98%, the STOXX 600 1.83%, the FTSE MIB 5.30%, the CAC 40 4.15%, the DAX 1.56%, the RTS 2.87% and the FTSE 100 1.15%.1
 
In Asia, key indices turned in much better performances. While Korea’s KOSPI retreated 2.76%, the Shanghai Composite gained 2.38%, the Nikkei 225 1.49%, the ASX 200 4.42%, and the Asia Dow 1.98%; the Sensex and Hang Seng both advanced 4.64%. In the Americas, the Bovespa gained 0.95%, the IPC All-Share 0.09% and the DJ Americas 1.98%. Up north, the TSX Composite slipped 2.32% for October.1
 
Finally, the Global Dow lost 0.26% last month; the MSCI Emerging Markets Index rose 1.07% and the MSCI World Index advanced 0.57%.1,11

 

COMMODITIES MARKETS
For the second straight month, big losses characterized this sector (select crops aside). Supply again outweighed demand for NYMEX crude: oil prices dropped 11.63% to $80.54 a barrel by Halloween. Other energy commodities were hit hard, too: heating oil slipped 5.11%, natural gas 6.35% and unleaded gasoline a whopping 16.94%. While copper moved 1.30% north on the month, silver retreated 5.44% and gold fell 2.94%; platinum futures lost 5.38%. Silver ended October at $16.11 an ounce, gold at $1,171.60 an ounce. The U.S. Dollar Index gained a little more in October. On September 30, it had settled at 85.94; on Halloween, it closed at 86.92 to go +1.14% for the month.12,13  

With winter coming to northern climes, certain ag commodities had a great month. Wheat futures rose 10.04%, soybean futures 14.31% and corn futures 16.33%. Sugar advanced 3.36%. The major losses came in warm-weather crops: cocoa fell 11.96%, coffee 3.01%.12

REAL ESTATE
September saw a minor acceleration in purchases of both new and existing homes: the National Association of Realtors reported resales up 2.4% and the Census Bureau found a 0.2% monthly advance in sales of new residences. Year-over-year, new home sales had improved 17.0%. NAR’s pending home sale index rose 0.3% for September after falling 1.0% for August. As for home prices, the yearly gain in the S&P/Case-Shiller Home Price Index continued to moderate, lessening 1.1% to 5.6% in the August edition.2,14

Markedly declining mortgage rates may have promoted an increase in home buying for October. On October 30, Freddie Mac had the average interest rate on a conventional home loan at 3.98%. In Freddie’s September 25 Primary Mortgage Market Survey, it was up at 4.20%. While the mean rate that Freddie measured for the 1-year ARM was 2.43% in both surveys, the 15-year fixed became cheaper in October with average interest rates falling to 3.13% from 3.36%, and so did 5/1-year ARMs with mean rates falling from 3.08% to 2.94%.15

As the housing industry said goodbye to another summer, the yearly rate of housing starts topped the 1 million mark again thanks to a 6.3% September rise in groundbreaking. The Census Bureau also noted a 1.5% gain in building permits for that month.16


To Your Prosperity,

Kevin Kroskey, CFP®, MBA 

This article adapted with permission from MarketingLibrary.net.
Citations.
1 - online.wsj.com/mdc/public/page/2_3023-monthly_gblstkidx.html [10/31/14]
2 - marketwatch.com/economy-politics/calendars/economic [10/31/14]
3 - bloomberg.com/news/2014-10-31/michigan-u-s-consumer-sentiment-index-rises-to-86-9-from-84-6.html [10/31/14]
4 - tinyurl.com/lynbsnf [10/3/14]
5 - 247wallst.com/economy/2014/10/22/september-cpi-avoids-deflation-fears/ [10/22/14]
6 - ism.ws/ismreport/NonMfgROB.cfm [10/3/14]
7 - foxbusiness.com/markets/2014/10/31/bank-japan-delivers-halloween-treat-for-wall-street/ [10/31/14]
8 - fuelgaugereport.com/ [11/3/14]
9 - forbes.com/sites/kenrapoza/2014/10/21/china-growth-party-over-but-large-investors-soldier-on/ [10/21/14]
10 - reuters.com/article/2014/11/03/us-global-economy-idUSKBN0IN0VF20141103 [11/3/14]
11 - mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [10/31/14]
12 - money.cnn.com/data/commodities/ [10/31/14]
13 - online.wsj.com/mdc/public/npage/2_3050.html?mod=mdc_curr_dtabnk&symb=DXY [11/3/14]
14 - csmonitor.com/Business/new-economy/2014/1024/New-home-sales-inch-up-to-a-six-year-high-in-September [10/24/14]
15 - freddiemac.com/pmms/archive.html [11/3/14]
16 - nasdaq.com/article/dollar-gains-ground-on-upbeat-consumer-sentiment-data-cm403255 [10/17/14]
17 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=10%2F31%2F13&x=0&y=0 [10/31/14]
17 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=10%2F31%2F13&x=0&y=0 [10/31/14]
17 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=10%2F31%2F13&x=0&y=0 [10/31/14]
17 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=10%2F30%2F09&x=0&y=0 [10/31/14]
17 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=10%2F30%2F09&x=0&y=0 [10/31/14]
17 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=10%2F30%2F09&x=0&y=0 [10/31/14]
17 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=11%2F1%2F04&x=0&y=0 [10/31/14]
17 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=11%2F1%2F04&x=0&y=0 [10/31/14]
17 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=11%2F1%2F04&x=0&y=0 [10/31/14]       
18 - treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [11/3/14]
19 - tinyurl.com/p7stlxc [10/31/14]
By
Subscribe to: Posts (Atom)

Future Posts at www.TrueWealthDesign.com

Any future blog posts will be done at www.TrueWealthDesign.com . Thank you, Kevin Kroskey, CFP, MBA

  • 2015 In Review
    Now that 2015 is in the rear-view mirror, let’s take a look at some of the factors that influenced markets last year.  And while the S&...
  • Future Posts at www.TrueWealthDesign.com
    Any future blog posts will be done at www.TrueWealthDesign.com . Thank you, Kevin Kroskey, CFP, MBA
  • February Monthly Market Commentary
    Markets continued their positive trend in February as each of the benchmark indexes listed in the table below posted monthly gains. Since t...